Fun with Leverage

VXX Strategy Combined with Leveraged TLT ETF

An old post regarding a simple asset allocation model that beat the average performance of the top ten hedge funds of the past 15 years got me thinking. As an aside, the average performance will be highly biased upwards as we only know in hindsight what the top 10 hedge funds were. Thinking can be dangerous. So can leverage. In the previous Python post, I tested a simple RV timing tool in VXX and combined with TLT ETF as a proxy for bonds. When you combine the two, you can get something like this:

VXX Strategy Combined with Leveraged TLT ETF

VXX Strategy Combined with Leveraged TLT ETF

I randomly selected data from Jan 2010 to Jan 2011 to optimize the weightings. I constrained the VXX strategy to only 1x but tested as high as 3x on TLT. The 1.9 sharpe compares with 1.6 Sharpe of a 1x allocation to the VXX strategy. The last couple of months have been pretty rough on VXX strategies so here is a closer look from 2014:

Jan 2014 - March 10, 2015

Jan 2014 – March 10, 2015

BTW, all calculations include commissions!


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